ATTIVO
Market Summary Week Ending 26/03/2023
The end of the trading week saw further disruption within the banking sector, with investor concern across the industry driving trading losses late in the week. Across the sector, Barclays, Societe Generale and BNP Paribas saw losses of 4.21%, 6.13% and 5.27% respectively.
Deutche Bank saw the largest daily loss of 8.22%, which was attributed to fears about a sudden spike in the cost of insuring against its default risk. This came after the uncertainty seen last week with the bailout of Credit Suisse by UBS for 3 billion Swiss Francs (£2.67 billion). Credit Suisse saw a decline in investor confidence after claims that the lender made ‘’materially false and misleading statements’’ in its 2021 annual report and the ensuing loss of financial assistance from one of its major shareholders, the Saudi National Bank.
Although concerning, many financial analysts are stating that Deutche Bank should not be treated as another Credit Suisse. This analysis can be drawn through two major criteria when comparing the scenarios in detail.
- Fourth Quarter Earnings (2022)
Deutche Bank reported a 1.8 billion Euro (£1.58 billion) profit for the last quarter of 2022. In comparison, Credit Suisse reported a loss of 1.4 billion Swiss Francs (£1.245 billion) for the same quarter.1
- Liquidity Coverage Ratio
Liquidity Coverage Ratio is a widely used metric to assess a firms ability to meet its short term obligations through highly liquid assets. This stood at 142% for Deutche Bank at the end of 2022, meaning the bank had more than enough liquid assets to cover a sudden outflow of cash for 30 days. Credit Suisse disclosed that they had to make use of their “liquidity buffers” in 2022 as they fell below regulatory requirements for liquidity.1
These key metrics, and other factors, show that the scenario for both banks is starkly different and whilst the increase in insurance for Deutche Bank and subsequent fall in share price is something to monitor, it is likely driven by investor sentiment about the baking sector as a whole rather than the individual credit worthiness of Deutche Bank.
Despite the declines seen in the banking sector the FTSE 100 closed the week with small gain of 0.64% and across the pond all major US indexes had positive weeks, with the Dow Jones gaining 1.2% week-to-date, while the S&P 500 and Nasdaq climbed 1.4% and 1.7%, respectively.
The week ahead sees the release of the Price Consumption Expenditure inflation numbers in the US on Friday (31 March), the preferred measure of the Federal Reserve to capture the state of inflation and is a key driver of the decision made on interest rates going forward.
Please note for this weekly summary, we focus on the major indices within the financial markets such as the FTSE 100 (UK) and the Dow Jones and NASDAQ (US) to provide a factual account of what has happened within a certain index. Performance figures quoted are factual from the previous week’s trading and this summary is for commentary purposes only.
The performance of these indices is not a representation of an individual fund or portfolio. Past performance is no guarantee of future returns. The value of your investment can go down as well as up. You could get back less than you originally invested.
1 Data retrieved from https://www.cnbc.com/2023/03/27/stock-markets-deutsche-bank-is-not-credit-suisse.html